"Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions." - Warren Buffet
Read? 12 Years of Christmas and Two Lessons in Investing.
From his own personal experience in 2008/2009; you don't have to be in high leverage to feel threatened; your immediate fear of near term liquidity needs and unsettled mind will not make good decisions too.
BUT, the Truth... Market can turn faster than our self-denial
The moment we have accepted the truth and overcome our self-denial. It is often too late. Big negative returns are locked once we have liquidated our investment at market low or near market low
In Jan 2009, Uncle8888 finally realised the liquidity for expenses issue and accepted the "truth" that the daily bombardment of Great Depression 2.0 news might be real.
What about losing his job? Living expenses. How???
What about his two kids university fund starting from Jul 2009? Taking a gamble???
He bited the bullet and liquidated them at big losses to maintain Liquidity for Expenses and locked in negative returns. Painful lesson learnt when market recovered two months later.
Never, never invest money that may be needed in few years even when the Bull Market is running fast!
Risk is the permanent loss of capital and not price stock volatility. We really cannot take stock price volatility anymore when we really need the money soon.
What Warren Buffet said is so right!
What is risk? The conventional definition of risk in finance literature is price volatility. But to super-investor Warren Buffett, risk is the permanent loss of capital.